2021 was an eventful year, marked by high drama in geopolitics, the ever-changing face of the pandemic, and the marked divergence in the stock performance of the world’s largest and second-largest economy. The emergence of the Omicron variant towards the end of 2021 was a stark reminder that the pandemic is far from over. Its transmissibility led to a rapid rise in new infections across the globe, but fortunately, this variant had proved less lethal than the Delta strain. The rollout of vaccination,  the availability of anti-viral medication, better testing and safe distancing protocols provide grounds for optimism that the worst of the pandemic is behind us.

US Equities delivered a very strong performance in 2021, lifted by strong economic & corporate earnings momentum, and further helped by the very accommodative monetary policies. across the globe.  Even though inflationary trends persisted through the year, expectations that inflationary pressures are transitory helped soothe market concerns and did not impede the stock market’s advance. However,  with signs of wage inflation taking hold, and the Fed’s hawkish tone after their December FOMC set the stage for the market to discount an earlier than expected raising of the regulatory rates and shrinking of the Fed’s balance sheet.

2021 in China was shaped by the policies. Adding to the tight credit policy was a series of regulatory actions to promote fairer competition, contain leverage and financial risks, tame property speculation, and promote social and equality. The China Securities Regulatory Commission’s rules on the overseas listing of Chinese companies in December exemplified the unrelenting regulatory overdrive that characterized the Chinese financial market in the past year. Chinese equities valuations are very attractive after the sharp decline last year and look highly attractive to long-term investors, prepared to look beyond the near-term uncertainties.

Whether it is dealing with inflation as in the US or uncertainties over regulatory changes in China, our conviction is that quality companies that have strong businesses will continue to deliver strong returns on their invested capital and ultimately reward their patient investors.

Dec 2021